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Tax changes divorcing couples should know about

For some Minnesota couples who are ending their marriages, changes mandated by the Tax Cuts and Jobs Act, which passed in late 2017, will mean less money for them after the divorce. The TCJA changed how parents can take exemptions for children on their taxes and how alimony is affected by the new law.

There is a significant increase in the head of household deduction, and this can be taken by a single parent who has the child in the home more than 50 percent of the time and who pays over half of household expenses. There is also a child tax credit that the HOH parent can take. In the past, parents could alternate claiming the child tax deduction, but it is unclear whether this will be the case for the child tax credit. Parents may include a provision stating that this will be tradable if IRS regulations allow it.

For several decades, people paying alimony have been able to deduct that payment from their taxes while the recipient had to claim it. This will no longer be the case starting with divorce agreements finalized in 2019. Many experts believe the result for recipients may be less money. Couples may want to allow flexibility in their divorce agreement regarding alimony in case Congress makes further changes to this law although it is not due to sunset in 2025.

Divorce can be a complex process with or without these tax considerations. There may be additional tax issues to keep in mind, such as whether certain assets will be taxed if they are sold or when distributions are made. This may affect how the value of those assets is assessed. Couples may want to consider negotiating the divorce agreement instead of going to court. Mediation or other alternative dispute resolution methods can help them work through conflict and reach a mutually beneficial settlement.

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